Gamble of the week: A competitive comparison site

published 16 June 2014

Saving money is a good thing to do and, for many households, it's a necessity. The internet and the growth of price-comparison sites has made it a loteasier for people to find a better deal on their car insurance, credit card or electricity bill.

But what about making money from investing in one of the companies that provides all these price comparisons? Given that every second or third advertisement on TV seems to come from one of them, it's easy to think that this market is too competitive to be a good long-term investment.

Anyone who bought shares in the flotation of Moneysupermarket.com(LSE: MONY)at 170p in 2007 is probably not smiling very much now, as the share price is only 15p higher than it was then. That said, profits have been growing steadily and the shares no longer look as pricey as they once did.

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For me, the key issue is whether Moneysupermarket.com has any form of competitive advantage that will stop existing or new players eating its lunch.I think it has.

While it still gets the bulk of its income from fees paid by insurance companies, where competition is high, it is doing a good job here. According to some sources, it is offering better prices than many of its competitors for car insurance and this should encourage customers to use it again.

The market for insurance, credit cards and savings accounts is unlikely to grow that much though. However, Moneysupermarket.com is branchingout into other areas, where the prospects are better.

One such arena is travel, where visitors to its website can compare the prices of packaged holidays, hotels and car rental.

This business is doing well. The websitehas a thriving online community,which has generated extra businessin areas such as credit cards.

The bigboost, though, has come from pricecomparisons on utility bills, whereMoneySavingExpert.com's cheapenergy club has tapped in to the growingnumber of people switching from the bigsix energy suppliers.

Moneysupermarket.com's home bill checker' servicelets people compare their utility andbroadband bills with those of othersliving in the same postcode catchmentarea. The firm looks well placed to growhere. Moneysupermarket.com alsohas the potential to make money byselling information on customer datatrends (not personal information) toinsurance firms.

The shares are not in the bargainbasement, but look reasonably valuedat just over 15 times this year's expectedearnings. There's also a nice dividedyield of 4.4% to be had. With profits wellplaced to keep on growing, now lookslike a reasonable time to buy in.

Verdict: buy

Phil spent 13 years as an investment analyst for both stockbroking and fund management companies.

After graduating with a MSc in International Banking, Economics & Finance from Liverpool Business School in 1996, Phil went to work for BWD Rensburg, a Liverpool based investment manager. In 2001, he joined ABN AMRO as a transport analyst. After a brief spell as a food retail analyst, he spent five years with ABN's very successful UK Smaller Companies team where he covered engineering, transport and support services stocks.

In 2007, Phil joined Halbis Capital Management as a European equities analyst. He began writing for MoneyWeek in 2010.